ENFORCEABILITY OF A LOCKOUT AGREEMENT

ENFORCEABILITY OF A LOCKOUT AGREEMENT

A Lockout Agreement is a legally enforceable agreement between a buyer and a seller, that provides exclusive rights of the seller on the property. During this period, the seller is not allowed to communicate with any third party with regard to the contract. The end result of this agreement may not necessarily lead to a sale. This period, known as a lockout period, is provided to the buyer so that they can research the property in question and make their decision with the help of the research they do. It might not carry an advantage on the side of the seller, as he is not allowed to sell or negotiate a deal with any other party, but a seller benefits a lot from such an agreement.

In the case of Walford and Others v Miles¹, the House of Lords stated that a lockout agreement is enforceable. The essentials needed to make a lockout agreement enforceable are as follows:

1. The entire concept behind a lockdown agreement is where the seller has to oblige to certain terms and conditions, which include the inability to negotiate a term with any third party interested in the property. Some other conditions that come under a seller’s obligation can be to not let third-parties visit the property, or not to enter into any contractual obligations with the third party for any aspect related to the property.

2. The validity and enforceability of a lockout agreement work only if the lockout period is defined in the agreement. Any amount of time as agreed by the buyer and the seller must be specified in the agreement. The dates must be mentioned in order to avoid confusion. Mentioning the period is essential, as then the seller and look at any possible losses or opportunities that might come during the period.

3. Sometimes an agreement between two parties leads to the disclosure of sensitive information related to the parties or the property in question. A confidentiality clause can be included in the agreement in order to provide a safety net for the parties. Any information could lead to a negative image of the property, which might lead to losses for the seller.

4. A lockout agreement may or may not lead to a sale. In such a case, a clause shall be added where the terms and conditions of notifying the parties in case of a change in mind are mentioned. This way, the period of lockout can end sooner, leading to saving up costs, losses, and time.

5. A lockout agreement does not benefit well with the seller. Hence, the parties must enter into such an agreement with good faith. They must mention a clause where they specify what they expect from the agreement in the upcoming future, and what they each have to offer. A crystal-clear contract creates no problems for the buyer as well as the seller. Including this, under the good faith that both parties have on each other, they must be honest and provide subsidized and nominal rates at which they decide to deal with the property.

6. With the seller having several obligations to abide by, the buyer to is expected to obey certain restrictions and fulfill the duties. They can be imposed by the seller. Some of them could include providing the seller with the information gathered during the lockout agreement. The seller has the rights to review and gain the knowledge put together by the buyer. Along with that, the buyer must furnish all the documents on time, either by themselves or by their solicitor.

7. In case there is a breach of the agreement by the seller, the buyer has all the rights to press charges against the same. The buyer will be entitled to any damages caused as well as the fee deposited at the beginning of the agreement. However, the buyer cannot invoke an injunction and stop the sale from happening. When there is a breach by the buyer, the seller has the right to forfeit the initial fee paid by the buyer. Along with that, the seller can also press charges and claim the damages caused due to the breach.

Usually, when there is a breach from any party’s side, the seller does not benefit from it as much as the buyer does.

8. In case either of the parties decides to terminate the agreement and withdraw from the lockout period, it is essential for them to provide proper notice stating the reasons why they wish to do so. In the failure of providing notice, it would lead to a breach and several liabilities thereupon. Hence, having a clause that specifically mentions the mode and method of notice would make the agreement and its terms clearer for the buyer as well as the seller.

9. If the buyer decided to purchase the property and serves legal notice to the seller during the lockout period, and if the seller denies moving forward with the agreement, then the buyer is entitled to all the costs of the research conducted during the period. Any cost incurred by the buyer regarding the property during the lockout period will have to pay back by the buyer.

With all the above conditions and essentials met, any lockout period will be legally enforceable in nature.

References -

1. Paliwala, M. (2020, August 24). Elaboration of the concept of Essentials of a Lock-Out Agreement. Retrieved November 17, 2020, from https://blog.ipleaders.in/essentials-lock-agreement/

2. Garg, R. (2020, November 02). Enforceability of lockout agreements. Retrieved November 17, 2020, from https://blog.ipleaders.in/enforceability-lock-agreements/

3. Lockout agreements in the property industry – extent of their protection. (n.d.). Retrieved November 17, 2020, from https://www.cms-lawnow.com/ealerts/2005/03/lockout-agreements-in-the-property-industry-extent-of-their-protection?sc_lang=en

4. Exclusivity Clause: Everything You Need to Know. (n.d.). Retrieved November 17, 2020, from https://www.upcounsel.com/exclusivity-clause

BY-

Aditi Goel